Committee Hears Proposal to Create Fifth Income‑tax Tier, Raise Corporate Rate; A2 Amendment Adopted and Bill Laid Over

Senator McEwen introduced Senate File 2,290 as amended, a proposal to create a fifth income‑tax tier for the state's highest earners and to raise the corporate franchise tax rate. "This bill would increase the individual income tax for the very highest earners in Minnesota, by creating a fifth tier," McEwen said. The adopted A2 amendment also raises the corporate franchise tax rate to 12.45% to align it with the proposed top income tax tier.

Scope and fiscal effect: the author and backers said the proposal would raise roughly $2.36 billion in the upcoming biennium; Senator McEwen said the revenue increase "would nearly solve our budgetary imbalance" and would affect a small share of returns: roughly 2.7% of filers. The bill adds a 2.6 percentage‑point increase for top earners; the bill text as discussed would start the top tier at $250,000 for individual filers and $500,000 for married joint filers, bringing the statutory top rate and corporate rate to 12.45% under the amendment.

Support and rationale: labor and public‑sector groups, educators and care‑sector advocates testified in favor. Ben Baglio of the Minnesota Nurses Association urged the committee to “ask the richest 5% of Minnesotans to pay a little bit more,” and Pat Benner of AFSCME Council 5 said the measure would preserve services and bolster wages for public workers. Early childhood and childcare advocates emphasized workforce and access issues, arguing new revenue would fund child care and education programs; Alex Hoselton of Education Minnesota described teacher pay and retention challenges.

Opposition and economic concerns: business groups warned the tax would harm Minnesota's competitiveness. Brian Cook of the Minnesota Chamber called the proposal damaging to the business climate and warned it could deter investment; Gavin Hansen of the Minnesota Business Partnership and John Besche of the National Federation of Independent Business also opposed the measure, citing high marginal rates, relocation risks and impacts on small businesses structured as pass‑through entities. Chamber testimony noted Minnesota already ranks high nationally for corporate and individual tax burdens and cautioned about pass‑through and corporate incidence effects on consumers, workers and investors.

Technical and scoring issues: several members asked whether the Department of Revenue's estimate included dynamic or "HITS" scoring for migration effects. The chair noted the revenue estimate did not use dynamic scoring and therefore does not account for behavioral changes such as taxpayer migration. Senator Draskowski raised concerns that the static revenue estimate may overstate net receipts if high‑income filers relocate.

Committee actions and procedural status: the committee adopted the A2 (author's) amendment by voice vote after Senator Nelson moved it. Senate File 2,290 was then laid over as amended. No final passage or roll‑call vote on the bill was taken in the committee during the hearing.

Discussion versus decision: the committee received extended testimony both supporting and opposing the bill; no final decision was made beyond adoption of the A2 amendment and laying the bill over. Members asked for additional analysis given the budget forecast and competing priorities.

What to watch next: follow‑up items include potential inclusion in an omnibus tax bill, further revenue analysis (including dynamic impacts), and negotiation over thresholds, exemptions and the corporate rate.